Auditors' liability: Commission consults on possible reform of liability rules in the EU

The European Commission has launched a public consultation on whether there is a need to reform rules on auditors’ liability in the EU and on the possible ways forward. This follows an independent study on the economic impact of current auditors' liability regimes and on insurance conditions in Member States (IP/06/1307). The Commission presents four possible options for reforming auditors' liability regimes in the EU and invites stakeholders to give their views on the issues involved by 15 March 2007.

Internal Market and Services Commissioner Charlie McCreevy said: "There is an increasing trend of litigation against auditors, but often they cannot obtain sufficient insurance to cover the risk. So there is a real danger of one of the "Big Four" being faced with a claim that could threaten its existence. There are many ways to improve this situation: some Member States already have capped auditors' liability, while others are introducing proportional liability combined with some limitations on who can sue auditors. However, given the differences between national markets, there is probably no one-size-fits-all approach. I want to ensure a thorough debate on the possible ways forward, and I encourage interested parties to give us their views."

Possible ways forwardIn October 2006, the Commission published an economic impact study prepared by an external consultant, London Economics. On the basis of this study, the Commission invites stakeholders to give their views on four possible options for reforming auditors’ liability:

The introduction of a fixed monetary cap at European level, but this might be difficult to achieve.

The introduction of a cap based on the size of the audited company, as measured by its market capitalisation.

The introduction of a cap based on a multiple of the audit fees charged by the auditor to its client.

The introduction by Member States of the principle of proportionate liability, which means that each party (auditor and audited company) is liable only for the portion of loss that corresponds to the party’s degree of responsibility.

In addition, the Commission has published an overview of the legal situation in Member States.

The European Commission has taken action to put an end to obstacles to the freedom of establishment in Germany and Portugal. The Commission has decided to refer Germany to the European Court of Justice over its authorisation rules for vehicle inspection organisations, in particular the requirement for compulsory affiliation of a minimum number of (self-employed) independent experts. On the same subject, the Commission will formally request Portugal to amend its rules on the granting of authorisations to bodies of other Member States wishing to carry on vehicle inspection activities in Portugal. This formal request takes the form of a “reasoned opinion”, the second stage of the infringement procedure laid down in Article 226 of the EC Treaty. If there is no satisfactory reply within two months, the Commission may refer the matter to the European Court of Justice. The Commission considers these national rules to be incompatible with EC Treaty rules on the freedom of establishment (Article 43).

Portugal – establishment of vehicle inspection bodiesAccording to Portuguese legislation, bodies wishing to carry on vehicle inspection activities in Portugal need an authorisation which may be granted under certain conditions, which the Commission considers excessively restrictive and incompatible with the freedom of establishment. The conditions in question are the granting of new authorisations depending on the public interest, the obligation to have a minimum social capital of 100,000 EUR, the imposition of an exclusive object requirement on the company, and incompatibility rules concerning partners, managers and administrators of these companies with other activities in the area of car manufacturing.

The Commission cannot accept the argument of the Portuguese authorities that the restrictions are covered by Article 45(1) of the EC Treaty as the activities concerned are not connected with the exercise of official authority. Furthermore, the Commission cannot accept that the restrictions are justified by imperative reasons relating to road safety and fraud prevention, as there are other less restrictive measures to attain these objectives, such as appropriate controls on these bodies.

IP/06/1789Brussels, 13 December 2006The European Commission has decided to refer the following Member States to the European Court of Justice under Article 226 of the EC Treaty: Portugal over its failure to implement EU rules on the recognition of qualifications for pharmacist-biologists; and Spain over its rules on the recognition of qualifications for hospital pharmacists.

Portugal – pharmacist-biologistsThe Commission has decided to refer Portugal to the European Court of Justice over its failure to implement Directive 89/48/EEC on a general system for the recognition of professional qualifications in the case of the profession of pharmacist-biologist (pharmacist specialised in “Análises Clínicas").

Directive 89/48/EEC is designed to ensure freedom of movement within the Union for a large number of regulated professions. Portugal decided to implement this Directive by means of a general decree-law applicable to all the regulated professions listed exhaustively therein. However, the profession of pharmacist-biologist, although regulated in Portugal, was not included in the decree-law. This means that qualified pharmacist-biologists from other Member States are not entitled to practise in Portugal and, consequently, are denied the rights of freedom of movement and freedom of establishment granted by the Treaty.

Although another Community instrument (Directive 85/433/EEC) provides for the automatic recognition of formal qualifications in pharmacy, it relates solely to basic diplomas guaranteeing the right of establishment. As a result, specialist pharmacy qualifications, such as those relating to pharmacist-biologists, are covered by the directives on the general system for the recognition of professional qualifications. Portugal has failed to respond to the additional reasoned opinion notified to it by the Commission.